To track the intended -- and more importantly, unintended -- consequences of policies,market movements,buyout deals and regulatory censure. This forum will map the multiplier effect of what may seem minor events initially but spread out far and wide.

04/30/2011

Found this very intriguing legal battle, for my Investigative Reporting class, that could lay down the rules on how far our sources feel comfortable and safe in tipping us off! Read on...

An lesser known but crucial ongoing legal wrangle between Boeing Co., world’s second largest aircraft maker and two of its activist auditors, could change the nature, and frequency, of disclosures made to the news media by whistleblowers.

The lawsuit, currently before a federal court of appeals in California -- hearings started on April 15 -- will decide whether or not the Sarbanes-Oxley Act 2002 protects whistle-blowing to the press. If the protection is not granted, it could curtail many fraud-busting disclosures, said a lawyer for the plaintiffs. On the other hand, shielding it will raise tricky questions of exactly what constitutes media in today’s digital age, argued the Boeing lawyer in a phone interview.

They both, however, agree that this David-and-Goliath lawsuit was a test case of sorts and the verdict, either way, was going to have "ripple effects."

“There are no precedents for this. This has never been decided before and that makes it much harder to anticipate which way it will go,” said Eric B Martin, a Richmond-based employment lawyer with law firm McGuire Woods LLP who is representing Boeing.

Both Nicholas P. Tides, an export compliance specialist, and Matthew C. Neumann became Audit IT SOX auditors for Boeing in January 2007 and during their stint made several complaints to supervisors about auditing deficiencies. But over time they concluded that “Boeing’s auditing culture was unethical” and the work environment “hostile”, according to the filings with the U.S. District Court of Washington, which gave the ruling in February 2010. This ruling is currently in appeal in the Ninth Circuit court.

Eventually, these executives leaked the documents to Andrea James, a reporter from the Seattle Post-Intelligencer – an action that led to their getting suspended and later, fired. Tides and Neumann then filed whistleblower suits in the federal court.

When the District Court quashed their plea in February last year, it said the Sarbanes Oxley did “not prohibit termination for disclosures to the media” since it was not protected by the Act and “Boeing was entitled to terminate them for leaking confidential documents” in violation of corporate policies. The court further ruled that Section 806(1)(a) of the act protected employees against retaliation from employers only when the “information or assistance” was to “a Federal regulatory or law enforcement agency; any Member of Congress…or a person with supervisory authority…”

In September 2010, the Washington D.C-based non-profit National Whistleblowers Centre, which represents such fraud-busters across the country, pitched in. Its executive director Stephen Kohn will argue alongside the plaintiffs' attorneys.

The Center has filed an amicus curiae, or friend-of-the-court brief, for Tides and Newmann arguing that whistleblowers were “a bulwark of accountability” against corrupt government or corporations, who “should not be forced to choose between their jobs and their conscience.”

The whistleblower lawyers, David Colapinto and Richard Renner, seeking reversal of District Court’s verdict, have said in their brief that the “legislative history of SOX supports a broad scope of protection, broad enough to include media disclosures” which has supported in bringing many criminals to book.

News organizations broke stories on the Enron scandal and the ponzi scheme run for two decades by Bernie Madoffbefore SEC investigations began, the brief recounts. It also quotes a study by the Booth School at the University of Chicago that found nearly 15.5% of corporate frauds were detected by the media, compared to 14.1 % detected by industry regulators, government agencies and self-regulatory organizations.

The lower court’s verdict would put the lid on such instances, contend NWC lawyers.

Citing previous case laws – pertaining to the First Amendment, The Whistleblower Protection Act, Water Pollution Control Act, Occupational Safety and Health Act – the plaintiff’s brief says that a restrictive or “per se exclusion of disclosures to the media from Sarbanes Oxley's zone of Protection” “perverts the purpose of the Act.” The district court had said that since media wasn’t specifically mentioned, it was excluded from the list.

Boeing’s lawyer Martin said, “If the protection were to be granted under SOX, then yes. a lot more whistle-blowing will happen through the media. But I’m not sure members of the media are capable of acting on that information.”

CNBC.com on February 8 wrote a story about a mushrooming “cottage industry” around whistle-blowing in the US, with lawyers actively soliciting such cases for a share in the spoils and how these truth tellers were emerging as the latest breed of “bounty hunters”.

“The content of disclosure is important, not the medium. Whether it is a journalist or a foreman, the protection should apply to everyone under SOX,” said Renner in a phone interview. He wants a blanket protection for such public service “…even in case of false alarms, even when the whistleblower is proved wrong" since "he didn’t know at the time of disclosure what the outcome of probe would be!”

There is, however, slippery ground around this argument.

“Today we have blogs and twitter and websites reporting on news as well. So what really constitutes media? Where is the line drawn if the protection were to be extended?" asks Martin. The next real good question will then be: So is Wikileaks media too?